New committee key to financial reform and regulation

BEIJING — China’s decision to establish a committee to oversee financial stability and development will be key to reform and coordinated regulation of the financial sector, economists said.

“The reason why China has decided to launch a financial stability and development committee is that it could shore up weak links in supervision and strengthen comprehensive coordination,” said Lian Ping, chief economist with Bank of Communications.

Given a fragmented and segmentary system might leave blind spots in supervision and lead to financial arbitrage, the introduction of the committee will help improve the effectiveness of regulation and address regulation challenges brought by increasingly mixed financial services, Lian said.

The financial stability and development committee should be an authoritative decision-making body rather than an advisory body, according to Lian.

China announced that it will set up a committee under the State Council to oversee financial stability and development during a two-day National Financial Work Conference that ended on July 15.

The conference also said the central bank will play a stronger role in macro prudential management and guarding against systemic risks.

The role of the committee and the function of the central bank are complementary in terms of financial supervision, Lian said.

Xu Hongcai, an economist with the China Center for International Economic Exchanges, agreed with Lian, saying that China’s decision to set up the committee aimed to enhance coordination and improve weak links in financial oversight.

Xu said a country’s central bank plays a special role in its financial system, and the conference highlighted the central bank’s role in macro prudential management and avoiding systemic risk.

The planned committee will elevate the level of financial supervision, enabling the country to better deal with financial risks from home and abroad and push forward economic restructuring, according to Zhou Xiaoquan with Central China Securities.

The government will also enhance coordination and connectivity of financial infrastructure and promote sharing of statistics and supervision information, according to the conference.

Tasks highlighted at the conference include making the financial sector better serve the real economy, containing financial risks and deepening financial reforms.

The conference has been convened every five years since 1997 and is widely considered to set the tone for financial reforms.

On the eve of the conference this year, the Chinese insurance regulator warned of multiple risks in the insurance industry, ranging from liquidity pressure to reputation management.

Chinese insurers grabbed headlines by using leveraged money to buy shares in listed companies, triggering sharp volatility in the market late last year.

Right before the conference, the country’s securities regulator also extended its message to strengthen oversight on the securities market to keep it fair, open and impartial.

“The regulator will continue to crack down on violations of securities laws and regulations, including insider trading and market manipulation,” said Jiang Yang, vice chairman of the China Securities Regulatory Commission during an exclusive interview with Xinhua.

In April, China’s central leadership called for concrete efforts to maintain financial security, saying that financial vitality would lead to economic vitality, and financial stability is of key importance to economic stability.